Indonesian ban on foreign currency payments comes into force

The Central Bank of Indonesia has put into force a complete ban on the use of the US dollar and other foreign currencies in all financial transactions in the country to stop the rupiah free fall.

The ban, effective from
July 1, 2015, was first announced by the head of Bank Indonesia
Eco Yulianto in April.

He said then that the ban is on any transactions, including
payments for hotel accommodation, flights, rental property and
the payment of wages, as well as fixed prices in any other
currency except the Indonesian rupiah. Breaking the law can be
punished with imprisonment of up to a year or a fine of $15,000.

However, the central bank later said it made an exception for
international companies who will still be allowed to pay their
foreign employees in dollars.

Another exception is the companies that invest in the
construction of energy facilities and infrastructure. Bank
Indonesia said it is considering other exceptions for investment
in strategic industries as a special case.

Hotels and restaurants are allowed to set prices in dollars as
part of their product promotion on the internet, but payment
should be made in rupiah.

The rapid depreciation of the Indonesian rupiah against the US
dollar made it the least successful national currency in the
developing Asian countries. In March 2015 the currency plunged to
a 17-year low having lost seven percent since the beginning of
the year. Its exchange rate stood at 13,384 rupees to the dollar
in mid-June.

In April Indonesia reaffirmed its readiness to switch to
settlements in local currencies with Russia. The Indonesian
Coordinating Minister for Economic Affairs Sofyan Djalil said it
is interested in reducing the dependence of the US dollar on the
global financial system.